DIFC Courts' Jurisdiction: Corinth Pipeworks Appeal Allowed

In CFI 024/2010 Corinth Pipeworks S.A. v Barclays Bank PLC Sir Anthony Colman, Deputy Chief Justice of the DIFC struck out Corinth Pipeworks SA's claim for damages for statements allegedly made by one of the employees of the defendant's Jebel Ali branch on the grounds that the DIFC courts had no jurisdiction to hear a claim for wrongdoing outside the Centre even though the defendant bank carried on business within the Centre. I discussed that case in DIFC Court: Corinth Pipeworks SA v Barclays Bank Plc on 11 March 2011. The claimant appealed.   In CA 002/2011 Corinth Pipeworks SA v Barclays Bank Plc the Court (Chief Justice Michael Hwang SC and Justices Sir John Chadwick and His Excellency Ali Al Madhani) allowed the appeal.

The DIFC Courts' jurisdiction derives from Law No.12 of 2004 in respect of The Judicial Authority at Dubai International Financial Centre.  Art 5 (1) (a) of that law confers exclusive jurisdiction on the Court of First Instance in respect of "civil or commercial disputes civil or commercial cases and disputes involving the Centre or any of the Centre’s Bodies or any of the Centre’s Establishments."  Art 2 defined "Centre Establishments" as

"Any entity or business duly established or carrying on business in the Centre, including any Licensed Centre Establishments."

The same article defined "Licensed Centre Establishments" as "Any entity licensed, registered or otherwise authorised to carry on financial or banking business."  Sir Anthony had held that the branch of the defendant company that carried on business in the DIFC was a "Centre Establishment" but not the bank as a whole.

The Court of Appeal disagreed with Sir Anthony's "reasoning that a "Centre Establishment" can be identified as an unincorporated entity which is permitted to conduct business within the DIFC in accordance with the terms of its license and registration with the DIFC."   In the words of the Chief Justice at paragraph [59]:

"Centre Establishment" must be a legal entity because that is the only way in which the term "entity" used in Article 2 of Law No. 12 can be understood. Where a bank is licensed to carry on business in a place outside its country of incorporation, it is necessary for that bank to carry on business either through an unincorporated branch of the bank or through a separate legal entity which is a subsidiary of the bank. Bank regulators frequently, if not typically, require foreign banks to carry on mainstream banking business through a branch rather than a local subsidiary. However, it would be uncommon for an unincorporated branch of a foreign bank to be treated under local law as a legal entity separate and distinct from its head office unless it has been separately incorporated as a subsidiary. I cannot therefore accept the proposition advanced by the Deputy Chief Justice that a "Centre Establishment" can be an entity which may be (to use the learned Judge's words) "within the corporation". A branch is no different in law from a division, and a division of a corporation is part of that corporation, and has no legal entity of its own (although it may be treated as an accounting entity for certain purposes)."

Having found that an unincorporated DIFC branch of a foreign bank cannot be regarded as an independent entity for purposes of qualifying as a "Centre Establishment", it followed that this term had to be interpreted to mean the defendant bank and its various branches, wherever located. Accordingly, the DIFC Courts had jurisdiction over the conduct of the branch where the alleged wrongdoing took place.

While sharing Sir Anthony's concern as to the limits of the DIFC courts' jurisdiction, the Chief Justice noted at paragraph [68] that:

"(a)    It is entirely within the control of banks and other enterprises carrying on business in the DIFC and the wider Emirate of Dubai as to whether they choose to subject their business within the wider Emirate to the jurisdiction of the DIFC Courts — if they do not wish to do so, they can either trade through separate corporate vehicles in the DIFC and the wider Emirate or (even more simply) include jurisdiction clauses in their contracts choosing where they allocate jurisdiction over any disputes.
(b)    There may well be good reasons why banks and other enterprises carrying on business in both the DIFC and the wider Emirate of Dubai should choose to subject their business within the wider Emirate to the jurisdiction of the DIFC Courts — their business may (as in the present case) be carried on in the English language, and/or their transactions may be subject to a substantive law other than that of the Emirate.
(c)   The situation under consideration will clearly not arise where the "Centre Establishment" is a company incorporated and carrying on business in the UAE outside the Emirate of Dubai or elsewhere. The principles of private international law limit the powers and discretion of the DIFC Courts so as to prevent the exercise of exorbitant jurisdiction, and the DIFC Courts possess the discretion to decline jurisdiction on grounds of forum non conveniens."

Sir John Chadwick and His Excellency Ali Al Madhani delivered concurring judgments.

The Court of Appeal's decision in Corinth Pipeworks follows hot on the heels of the decree of 31 Oct 2011 which extended the DIFC courts' jurisdiction to cover any business dispute from any part of the world.     I commented on the extension of the Court's judgment in "DIFC Courts Spread Their Wings" on 7 Dec 2011.   The combined effect of the decree and appeal is to enhance considerably the convenience of the court for determining all manner of commercial disputes including those relating to intellectual property.

Though an IP case is yet to come before the DIFC courts there is no reason why it should not handle one effectively.   Sir John Chadwick heard plenty such cases when he sat in the Chancery Division in London.   Part 25 of the Rules of the DIFC Courts enable those courts to grant interim injunctive relief as quickly and effectively as any court in the world. 

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DIFC Court: Corinth Pipeworks SA v Barclays Bank Plc

In the introduction to my leaflet on the Dubai International Financial Centre Courts (which may be downloaded from the JD Supra website) I wrote:

"The governments of the United Arab Emirates and Dubai have established a free zone for financial services in Dubai known as the Dubai International Financial Centre ("the DIFC") in the hope that it will become a major financial centre to rank alongside London, New York, Tokyo and Singapore. According to KPMG the DIFC already ranks 7th in its list of the world's leading financial centres.

One of the reasons for the DIFC's success is a special jurisdiction in the zone with its own laws and law courts. Although Dubai and the UAE are civil law jurisdictions and their official language is Arabic the laws of the DFIC are in English and based largely on UK statutes and the English common law.

The DIFC courts conduct their business in English. Their rules and procedure are based on the English Civil Procedure Rules. Most of the judges of the DIFC courts come from England and Wales or other Commonwealth countries. Most counsel and solicitors from England and Wales can qualify to practise before the DIFC Courts quite easily.

In CFI 024/2010 Corinth Pipeworks S.A. v Barclay's Bank PLC (8 Feb 2011) a Greek company carrying on business in Athens tried to extend the jurisdiction of the DIFC court to a cover any claim against an entity with a branch within the DIFC. The cause of action arose out of an allegedly false statement by an employee of the Jebel Ali branch of Barclays Bank. Jebel Ali is, of course, in Dubai but it is outside the DIFC. However, Barclays does maintain a branch in the Centre. It was on the strength of the Bank's presence in that zone that the claimant launched its action.

The defendant Bank applied for a declaration that the DIFC Court had no jurisdiction in this action under rule 12.1 of the Rules of the DIFC Court (the equivalent of CPR 11.1). The application came on before Sir Anthony Colman, Deputy Chief Justice of the DIFC Court.

Sir Anthony summarized the claimant's case as follows at paragraph [53]:

"The argument in favour of that jurisdiction is very simple. When by the process of registration of a business and the granting of the necessary licenses a Centre Establishment is created, it is the entire corporation body to which that registration and those licenses are granted because the process involves registration and grant in the name of that corporation alone and not in the name of any other exclusively DIFC legal person. Moreover, when the corporation enters through its DIFC branch into a commercial transaction it is the corporation as a whole that does so. Therefore, a dispute arising out of a transaction entered into by a branch of the corporation located outside the DIFC is as much a dispute involving a Centre's Establishment as a dispute arising out of a transaction entered into by a branch of that same international corporation authorised to carry on business within the DIFC."

His lordship remarked that "the argument advanced on behalf of the Claimant would, if correct, have potentially far-reaching consequences." He added:

"Many members of the legal professional conversant with the DIFC and its Courts would assume that, given that the purpose of the Court was to provide a dispute resolution facility for the DIFC and with regard to transactions associated or connected with it or the commercial enterprises carrying on trade within the DIFC, an international company with a branch licensed to carry on business in the DIFC would be confined to bringing claims within the DIFC Courts in respect of disputes connected with the business of that branch in the DIFC. The suggestion that an international company incorporated and having its head office in, say, the United States or the United Kingdom, but with a branch registered and licensed to do business in the DIFC, could start proceedings in the DIFC Courts or could be sued in that Court in respect of a claim wholly unconnected with the DIFC or the business of its DIFC branch would, on the face of it seem distinctly improbable. Were that so, the scope of jurisdiction of the DIFC Courts would have an international dimension which had not hitherto been generally perceived."

Allowing the application and striking out the claim the judge had no doubt that the claimant's argument was fundamentally defective. The flaw lay in

"according to the entire business of the corporation that characteristic which only the DIFC-authorised part of the business has. The fact that all the branches of the corporation may be part of a single legal person with a single corporate name emphatically does not result in all the branches of the corporation being part of a Centre's Establishment. The international corporation is a Centre's Establishment only to the extent to which its branch is authorised to conduct business in and from the DIFC and a claim or dispute only "involves" a Centre's Establishment when that claim or dispute is connected with or arises out of the activities of the corporation conducted by its DIFC branch or division. The requirement that the corporation as a whole must be a party to the proceedings and in its corporate name is simply a procedural consequence of its branch or division having no separate legal personality by which it can sue or be sued. What matters as regards jurisdiction under Article 5(A)(1)(a) is that it is with the conduct of the DIFC-authorised business that the cause of action is connected. The function of the DIFC Courts is to provide a justice system for the DIFC itself and to adjudicate on disputes connected with the commercial and civil activities of its organs (Centre's Bodies) and its population of those who are authorised to conduct a business in the DIFC in respect of which disputes have arisen."

His lordship's analysis is probably right but it does limit considerably the attractiveness of the DIFC Court as a forum for the resolution of commercial disputes. Herbert Smith has discussed this case and others in their article "The Courts of the DIFC - Can they hear your Dispute" in the March 2011 issue of the Middle East Exchange which appears on that firm's website.